Federal Standard for School Finance Equity

Education funding across school districts varies widely. Some school districts have very high per-pupil expenditures, while other districts in the same state may spend a significant amount less per student. There are a variety of ways of measuring school finance equity.

Conveniently the federal government has developed a standardized measure, called the "equity factor" that can be used to determine how evenly (or unevenly) funding is distributed across school districts in a state. The equity factor is defined in federal law under Title I Part A of the No Child Left Behind Act. Approximately $2 billion in Title I No Child Left Behind aid is distributed each year in accordance with the federal government’s equity factor.

The School Finance Equity Factor

The federal government’s equity factor is a measure of how much per-pupil expenditures vary across districts within a given state. The U.S. Department of Education calculates the equity factor for each of the 50 states, DC, and Puerto Rico by comparing per-pupil expenditure for each school district with the average per-pupil expenditure for the state, weighted according to district population size and poverty level.

Specifically, the equity factor is calculated by using a "weighted coefficient of variation" in district per-pupil expenditures. The weighted coefficient of variation is essentially the average per child deviance in education spending from the state mean – expressed in percentage terms. The lower the coefficient of variation is in a state, the more equitably education funding is distributed across districts.

The District of Columbia, Hawaii, and Puerto Rico have only one school district (and therefore no disparity in funding across districts) so they are assigned an equity factor of 0.0. There are also a number of states that meet certain standards established under Impact Aid. These states, Alaska, Kansas, and New Mexico, are assigned the maximum equity factor of 0.1. The five states with the most equitable funding across school districts within a state were: Hawaii (which only has one district), West Virginia, Florida, Iowa, and Washington. The five states with the least equitable funding across school districts in the state were: Missouri, Massachusetts, Virginia, Montana, and Illinois.

A detailed map ranking each state based on the equity factor is avaialbe here.  

School Finance Equity Factor Background & History

The federal government uses the school finance equity factor to calculate a portion of the federal grants made to local school districts under Title I Part A of the No Child Left Behind Act. This subset of Title I grants are called Education Finance Incentive Grants ("EFIG").

The EFIG formula is unique among the Title I distribution formulas in that it takes into account the distribution of expenditures across school districts and rewards all school districts in states where funding is more equitably distributed. Additionally, it provides greater grant aid to high poverty school districts in states where funding is less equitably distributed (i.e. "bad school finance states"). While school finance is largely left up to states and local school districts, the EFIG formula establishes a federal role in encouraging states to ensure equitable funding. The grants were first authorized as part of the Improving America’s Schools Act of 1994, but funding was not appropriated until the authorization was amended as part of the No Child Left Behind Act of 2001.

The EFIG formula provides funding to school districts based on four variables: (1) weighted low-income student population, (2) per-pupil expenditure, (3) effort, which measures the State’s effort in providing funding for education per pupil compared to it’s relative wealth as measured by the state’s per capita income and (4) equity, which measures the degree to which education expenditures vary among school districts within the state.  

As was stated before, the EFIG formula targets more grant aid to high poverty school districts in "bad school finance states." It does so by doubling the weighing of the variable in the formula for the number of poor children. As a result, the EFIG formula for distributing Title I No Child Left Behind aid is traditionally the most highly targeted of all federal education funding formulas nationally. Its leading Congressional proponents have been Senator Tom Harkin (D-IA) and Senator Orrin Hatch (R-UT).